Digital Financial Services and Implications of Financial Literacy on Gender and Over Indebtedness: The Case of Kenya

This study examines the relationshipbetweenfinancial literacy and over-indebtedness from a gender perspective and considering increased usage of digital financial services. The study used both primary and secondary data sourced from the FinAccess Household Survey 2021. The results show that although gender gaps in access and usage have declined over time, disparities still exist in terms of utilization of different components of financial products, financial literacy and indebtedness. Specifically, the results show that women prefer informal channels of credit services such as Chamas compared to men whose preference is formal channels. The results further show that both formal education and financial literacy lower the probability of over indebtedness, and that women are less financially literate than men and, for that reason, have higher chances of being over-indebted than men. The results also reveal that there is a huge demand for financial education, and that slightly more than a quarter of the surveyed population is aware of credit reference bureaus and less than a quarter canaccess anduse them despite their significance in minimizing information asymmetry, improving credit pricing, and minimizing default rates. Based on the results, the study provides three recommendations. First, development of customized financial initiatives targeting different customer segments S including women would be beneficial in minimizing financial literacy gaps and over-indebtedness. Second, the terms and conditions of loans that form an important financial decision-making tool need to be reviewed at industry and regulatory level, with an objective of making them simple, readable, concise and user-friendly. Thirdly, enhancement of access, usage, and awareness of CRBs can be an important policy tool for minimizing over-indebtedness.